Here is a simple definition from Allstate's website:
Actual Cash Value vs. Replacement Cost
Actual Cash Value and Replacement Cost coverage options refer to different ways your belongings may be replaced in the event of a covered loss. Many of your belongings will decrease in value over time, so it's important to consider this when you purchase coverage for protecting your personal property.
Actual Cash Value Coverage
Your personal property is typically covered for what you might expect to get if you sold it at fair market value - possibly at a garage sale, online auction site or other sales event - as replacement cost minus depreciation.
This coverage option may allow for the insured item to be replaced with a used item but not always a new one. Premiums for Actual Cash Value insurance coverage though generally cost less than those for the Replacement Cost coverage option.
Replacement Cost Coverage
With Replacement Cost coverage, your insured personal property items are usually covered for what it costs to buy them again at the time of the claim as new, although premiums for this type of insurance are typically higher than the Actual Cash Value insurance coverage option
Note: Some automobile policies can have a replacement cost rider added for new car purchases, so if you buy a brand new car it may pay to have this rider in the first few years when autos depreciate so rapidly. For more questions, give us a call or email us at Leanne@cms-insurance.com
